Net revenues totaled $113.5 million for the current year first quarter, compared to $123.0 million in the prior year first quarter ended May 4, 2013. Net income totaled $6.6 million, or $0.16 per diluted share, for the current year first quarter compared to net income of $9.2 million, or $0.23 per diluted share, in the prior year first quarter.

Robert Wallstrom, Chief Executive Officer, noted, "While our first quarter revenues were modestly below our expectations, we were able to post earnings per share above our guidance due to better than expected gross margin and expense performance."

"However, we continue to face a difficult environment, one that is proving much more challenging than we anticipated just two short months ago," Wallstrom continued.

"Direct segment revenues are weaker than we expected," Wallstrom also noted. "Sales from existing customers have been relatively stable, but our traditional patterns and products simply are not attracting enough new customers to our brand, and overall traffic is down substantially. In our Indirect segment, while orders from our major accounts are up, orders from our specialty gift channel retailers are down significantly on a year-over-year basis. Until we can make meaningful changes to our product offering and marketing initiatives, we don't expect these sales trends to substantially improve. As a result, we are lowering our revenue and earnings per share projections for the fiscal year.

"As we have noted, this will be an important year of transition and transformation for Vera Bradley. We believe that the product, distribution, and marketing initiatives we previously outlined as part of our long-term strategic plan are absolutely the right ones for the future. While the short-term will remain challenging, I am pleased with the progress we are making against these key elements of our five-year plan. Importantly, we have assembled a team of talented and seasoned retail executives - both from within the organization and new to the Company - that will help us achieve our long-term goals."

First Quarter Details

Current year first quarter revenues of $113.5 million fell modestly below the Company's guidance of $116 million to $120 million. The sales miss to guidance primarily was due to lower than expected orders from the Company's Indirect specialty retail partners, weaker than expected comparable store sales performance in the Company's retail stores, and a shortfall at the Company's annual outlet sale.

Current year first quarter Direct segment revenues totaled $73.4 million, essentially flat with $73.7 million in the prior year first quarter. In the Company's stores, first quarter year-over-year net revenues grew 5.9%, reflecting the opening of 16 full-line and three outlet stores during the past 12 months, which was partially offset by a comparable-store sales decline. Total company comparable store sales fell 9.4% for the quarter (which includes a 14.4% decline in store sales and a 3.2% decline in e-commerce sales). Comparable store revenues were negatively impacted by year-over-year declines in traffic and underperformance of the product offering. Severe winter weather negatively affected store traffic during the first two months of the quarter.

Indirect segment revenues decreased 18.9% to $40.0 million from $49.3 million in the prior year first quarter, primarily due to lower orders from the Company's specialty retail accounts.

Gross profit for the quarter totaled $60.5 million, or 53.3% of net revenues, compared to $68.5 million, or 55.6% of net revenues, in the prior year first quarter. The year-over-year decline in gross margin rate was primarily related to overhead costs deleveraging and increased year-over-year promotional activity. The first quarter gross margin rate was better than guidance of 52.0% to 52.6%, primarily due to the timing of a portion of the inventory liquidation initially planned for the first quarter that will now occur later in the year.

SG&A expense totaled $51.3 million, or 45.2% of net revenues, in the current year first quarter, compared to $55.2 million, or 44.9% of net revenues, in the prior year first quarter. In spite of lower than expected revenues, the SG&A expense rate was favorable to guidance of 46.0% to 46.6% primarily due to cost containment efforts as well as payroll associated with certain management positions that were budgeted but unfilled in the first quarter.

Operating income totaled $10.8 million, or 9.5% of net revenues, in the current year first quarter, compared to operating income of $15.2 million, or 12.3% of net revenues, in the prior year first quarter.

The effective tax rate was 38.7% for the quarter compared to 38.9% in the prior year first quarter.

Cash flow from operations for the first quarter totaled $27.0 million, compared to $14.9 million for last year's first quarter. The improvement was driven primarily by a reduction in inventory levels.

Cash and cash equivalents as of May 3, 2014 totaled $81.5 million compared to $8.2 million at the end of last year's first quarter. The Company had no debt outstanding at May 3, 2014. Quarter-end inventory was $126.6 million, modestly below guidance of $128 million to $133 million and compared to $138.9 million last year. Net capital spending for the quarter totaled $7.1 million.

Recent Event

On June 4, 2014, the Company entered into a five-year agreement with Mitsubishi Corporation and Look Inc. to import and distribute Vera Bradley products in Japan. As a result of moving to this wholesale business model, the Company will exit its direct business in Japan during the third quarter and will account for this business as a discontinued operation from that point forward. The Company expects to incur pre-tax charges related to the exit from Japan during the third quarter of approximately $2.0 million, equating to $.03 per share, which will be reflected in discontinued operations. Approximately $1.0 million of that amount relates to a non-cash charge for a currency translation loss that has accumulated in equity since entering the Japan market over three years ago. The remaining charge relates to the write off of certain assets, employee severance, and other exit charges. The new
wholesale business in Japan is included in the Indirect segment guidance below, but given that the new Look-operated distribution points are not expected to be opened until late in the year, the impact to the current year sales and earnings guidance is minimal.

Outlook

For the second quarter of fiscal 2015, the Company expects:

Net revenues to be in the range of $113 million to $120 million compared to prior year second quarter revenues of $125.4 million.

The gross margin rate to range from 53.5% to 54.0% compared to 57.2% in the prior year second quarter.

SG&A as a percent of sales to range from 43.0% to 44.5% compared to 38.6% in the prior year second quarter.

Diluted earnings per share to be in the range of $0.18 to $0.20, based on diluted weighted-average shares outstanding of 40.7 million and an effective tax rate of 40.0%. Diluted earnings per share totaled $.37 in the prior year second quarter.

The Company expects inventory to be $118 million to $128 million at the end of the second quarter, compared to $142.9 million at the end of last year's second quarter.

For fiscal 2015, the Company expects:

Net revenues to be in the range of $510 million to $530 million compared to $530.9 million last year.

The gross margin rate to range from 52.5% to 53.5% compared to 55.1% last year.

SG&A as a percent of sales to range from 40.0% to 41.5% compared to 38.4% last year.

Diluted earnings per share from continuing operations to be in the range of $1.00 to $1.10, based on diluted weighted-average shares outstanding of 40.7 million and an effective tax rate of 38.4%. Diluted earnings per share from continuing operations totaled $1.48 last year.

Net capital spending of approximately $40 million.

Call Information

A conference call to discuss fiscal 2015 first quarter results is scheduled for today, June 5, 2014, at 9:30 a.m. Eastern Time. A broadcast of the call will be available via Vera Bradley's Investor Relations section of its website, www.verabradley.com. Alternatively, interested parties may dial into the call at (888) 500-6974, and enter the access code 9338959. A replay of the call will be available shortly after the conclusion of the call and remain available through June 19, 2014. To access the recording, listeners should dial (877) 870-5176, and enter the access code 9338959.

About Vera Bradley, Inc.

Vera Bradley is a leading designer of women's handbags and accessories, luggage and travel items, eyewear, stationery and gifts. Founded in 1982 by friends Barbara Bradley Baekgaard and Patricia R. Miller, the brand's iconic designs and versatile styles offer women of all ages a colorful way to accessorize every look.

Vera Bradley offers a unique, multi-channel sales model as well as a focus on service and a high level of customer engagement. The Company sells its products through two reportable segments: Direct and Indirect. The Direct business consists of sales of Vera Bradley products through the Company's full-price and outlet stores in the United States; department store locations in Japan; its websites, verabradley.com and verabradley.co.jp; and its annual outlet sale in Fort Wayne, Indiana. The Indirect business consists of sales of Vera Bradley products to approximately 3,000 specialty retail doors, substantially all of which are located in the United States, as well as select department stores, national accounts, third party e-commerce sites, and third-party inventory liquidation.

The Company's commitment to breast cancer research continues to increase its reach through the Vera Bradley Foundation for Breast Cancer.

We routinely post important information for investors on our website www.verabradley.com in the "Investor Relations" section. We intend to use this webpage as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our webpage is not incorporated by reference into, and is not a part of, this document.

Vera Bradley Safe Harbor Statement

Certain statements in this release are "forward-looking statements" made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the Company's current expectations or beliefs concerning future events and are subject to various risks and uncertainties that may cause actual results to differ materially from those that we expected, including: possible adverse changes in general economic conditions and their impact on consumer confidence and spending; possible inability to predict and respond in a timely manner to changes in consumer demand; possible loss of key management or design associates or inability to attract and retain the talent required for our business; possible inability to maintain and enhance our brand; possible inability to successfully implement our growth strategies or manage our growing
business; possible inability to successfully open new stores as planned; and possible inability to sustain levels of comparable-store sales. For a discussion of these and other risks and uncertainties that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 1, 2014. We undertake no obligation to publicly update or revise any forward-looking statement. Financial schedules are attached to this release.

Vera Bradley, Inc.

Consolidated Balance Sheets

(in thousands)

(unaudited)

May 3,
2014

February 1,
2014

May 4,
2013

Assets

Current assets:

Cash and cash equivalents

$ 81,524

$ 59,215

$ 8,229

Accounts receivable, net

18,557

27,718

26,758

Inventories

126,562

136,923

138,949

Prepaid expenses and other current assets

9,417

9,952

9,211

Deferred income taxes

13,981

13,094

11,860

Total current assets

250,041

246,902

195,007

Property, plant, and equipment, net

88,433

84,940

79,652

Other assets

879

1,085

1,630

Total assets

$ 339,353

$ 332,927

$ 276,289

Liabilities and Shareholders' Equity

Current liabilities:

Accounts payable

$ 23,686

$ 27,745

$ 17,768

Accrued employment costs

10,871

10,586

9,571

Other accrued liabilities

22,365

20,403

18,335

Income taxes payable

3,397

1,625

5,761

Current portion of long-term debt

--

--

42

Total current liabilities

60,319

60,359

51,477

Long-term debt

--

--

5,030

Other long-term liabilities

12,645

12,778

10,134

Deferred income taxes

4,267

4,643

6,102

Total liabilities

77,231

77,780

72,743

Shareholders' equity:

Additional paid-in-capital

78,551

78,153

76,032

Retained earnings

184,569

178,002

128,379

Accumulated other comprehensive loss

(998)

(1,008)

(865)

Total shareholders' equity

262,122

255,147

203,546

Total liabilities and shareholders' equity

$ 339,353

$ 332,927

$ 276,289

Vera Bradley, Inc.

Consolidated Statements of Income

(in thousands, except per share amounts)

(unaudited)

Thirteen Weeks Ended

May 3,
2014

May 4,
2013

Net revenues

$ 113,461

$ 123,033

Cost of sales

52,936

54,567

Gross profit

60,525

68,466

Selling, general, and administrative expenses

51,312

55,227

Other income

1,577

1,951

Operating income

10,790

15,190

Interest expense, net

80

141

Income before income taxes

10,710

15,049

Income tax expense

4,143

5,860

Net income

$ 6,567

$ 9,189

Basic weighted-average shares outstanding

40,639

40,580

Diluted weighted-average shares outstanding

40,725

40,624

Basic net income per share

$ 0.16

$ 0.23

Diluted net income per share

0.16

0.23

Vera Bradley, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Thirteen Weeks Ended

May 3,
2014

May 4,
2013

Cash flows from operating activities

Net income

$ 6,567

$ 9,189

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of property, plant, and equipment

3,563

3,323

Recovery of doubtful accounts

(115)

(213)

Loss on disposal of property, plant, and equipment

--

2

Stock-based compensation

980

806

Deferred income taxes

(1,263)

(548)

Changes in assets and liabilities:

Accounts receivable

9,276

8,266

Inventories

10,373

(7,567)

Other assets

741

1,943

Accounts payable

(7,075)

2,915

Income taxes payable

1,772

(1,333)

Accrued and other liabilities

2,138

(1,904)

Net cash provided by operating activities

26,957

14,879

Cash flows from investing activities

Purchases of property, plant, and equipment

(4,040)

(5,811)

Net cash used in investing activities

(4,040)

(5,811)

Cash flows from financing activities

Payments on financial-institution debt

--

(35,000)

Borrowings on financial-institution debt

--

25,000

Shares surrendered for tax withholding

(582)

(389)

Other financing activities, net

(24)

(23)

Net cash used in financing activities

(606)

(10,412)

Effect of exchange rate changes on cash and cash equivalents

(2)

(30)

Increase (decrease) in cash and cash equivalents

$ 22,309

$ (1,374)

Cash and cash equivalents, beginning of period

59,215

9,603

Cash and cash equivalents, end of period

$ 81,524

$ 8,229

Supplemental disclosure of cash-flow information

Non-cash operating and investing activities

Property, plant, and equipment expenditures incurred but not yet paid

$ 3,016

$ --

Vera Bradley, Inc.

Supplemental Statement of Income First Quarter 20151

(in thousands, except per share amounts)

(unaudited)

Thirteen Weeks Ended, May 3, 2014

Thirteen Weeks Ended, May 4, 2013

As Reported

Discontinued
Operations

Continuing
Operations

As Reported

Discontinued
Operations

Continuing
Operations

Net revenues

$ 113,461

$ 1,264

$ 112,197

$ 123,033

$ 1,474

$ 121,559

Cost of sales

52,936

494

52,442

54,567

482

54,085

Gross profit

60,525

770

59,755

68,466

992

67,474

Selling, general, and administrative expenses

51,312

1,079

50,233

55,227

1,149

54,078

Other income

1,577

--

1,577

1,951

--

1,951

Operating income (loss)

10,790

(309)

11,099

15,190

(157)

15,347

Interest expense, net

80

--

80

141

--

141

Income (loss) before income taxes

10,710

(309)

11,019

15,049

(157)

15,206

Income tax expense

4,143

(118)

4,261

5,860

--

5,860

Net income

$ 6,567

$ (191)

$ 6,758

$ 9,189

$ (157)

$ 9,346

Basic weighted-average shares outstanding

40,639

40,639

40,639

40,580

40,580

40,580

Diluted weighted-average shares outstanding

40,725

40,725

40,725

40,624

40,624

40,624

Basic net income per share

$ 0.16

$ (0.01)

$ 0.17

$ 0.23

$ (0.00)

$ 0.23

Diluted net income per share

0.16

(0.01)

0.17

0.23

(0.00)

0.23

1On June 4, 2014, the Company entered into a five-year agreement with Mitsubishi Corporation and Look Inc. to import and distribute Vera Bradley products in Japan. As a result of moving to this wholesale business model, the Company will exit its direct retail business in Japan in the third quarter. The supplemental schedule provided above recasts the Company's fiscal 2014 income statement to present the Japan results as discontinued operations.

Vera Bradley, Inc.

Supplemental Statement of Income Fiscal 20141

(in thousands, except per share amounts)

(unaudited)

Thirteen Weeks Ended

Fifty Two Weeks Ended

Continuing Operations

Continuing
Operations

As Reported

May 4,
2013

August 3,
2013

November 2,
2013

February 1,
2014

February 1,
2014

February 1,
2014

Net revenues

$ 121,559

$ 123,969

$ 128,949

$ 156,419

$ 530,896

$ 536,021

Cost of sales

54,085

53,104

57,710

73,784

238,683

240,589

Gross profit

67,474

70,865

71,239

82,635

292,213

295,432

Selling, general, and administrative expenses

54,078

47,157

47,646

52,540

201,421

205,957

Other income

1,951

630

1,027

1,168

4,776

4,776

Operating income from continuing operations

15,347

24,338

24,620

31,263

95,568

94,251

Interest expense, net

141

82

58

101

382

382

Income from continuing operations before income taxes

15,206

24,256

24,562

31,162

95,186

93,869

Income tax expense

5,860

9,034

8,905

11,258

35,057

35,057

Income from continuing operations

9,346

15,222

15,657

19,904

60,129

58,812

Discontinued operations, net of income taxes

(157)

(271)

(431)

(458)

(1,317)

--

Net income

$ 9,189

$ 14,951

$ 15,226

$ 19,446

$ 58,812

$ 58,812

Basic weighted-average shares outstanding

40,580

40,603

40,605

40,606

40,599

40,599

Diluted weighted-average shares outstanding

40,624

40,623

40,652

40,694

40,648

40,648

Basic net income per share

Continuing operations

$ 0.23

$ 0.38

$ 0.38

$ 0.49

$ 1.48

Discontinued operations

(0.00)

(0.01)

(0.01)

(0.01)

(0.03)

As reported

1.45

Diluted net income per share

Continuing operations

0.23

0.38

0.38

0.49

1.48

Discontinued operations

(0.00)

(0.01)

(0.01)

(0.01)

(0.03)

As reported

1.45

1On June 4, 2014, the Company entered into a five-year agreement with Mitsubishi Corporation and Look Inc. to import and distribute Vera Bradley products in Japan. As a result of moving to this wholesale business model, the Company will exit its direct retail business in Japan in the third quarter. The supplemental schedule provided above recasts the Company's fiscal 2014 income statement to present the Japan results as discontinued operations.